Getting it wrong on GST

An article in this newspaper (‘Taxing body parts’, IE, July 21, by Muralidharan) regarding GST at 5 per cent on aids and appliances for the disabled paints the GST in a poor light and seems to stem from an ignorance of the GST law. It is sad that such an ignorance has clouded the vision of a person who is otherwise so eminent in his field, being the Secretary of the National Platform for the Rights of the Disabled. I am also worried that such ignorance about taxation laws could cause harm to the interests of disabled persons. There are two reasons why aids and appliances for people have not been exempted from the GST.

First, it needs to be clarified that under the GST, the most beneficial rate of tax on any item is 5 per cent. Aids and appliances for disabled people, like wheelchairs, talking books, assistive listening devices and implants for the severely physically challenged, are taxed at this rate. This allows the suppliers of these items to claim an input tax credit for the GST paid on the inputs (raw materials) and input services used for supplying these items.

Most of the inputs (raw materials) and input services are in the 18 per cent GST rate category. Some of the sophisticated electronic inputs are under the 28 per cent rate. Thus, effectively, the entire 5 per cent GST levy on the aids and appliances for the disabled people will be offset against the input taxes, leading to zero effective tax on these items.

No supplier of these items will pay GST from his pocket and the input tax credit will always be more than sufficient for discharging the GST liability. Not only that, as most of the inputs and input services have a GST rate of 18 per cent, the supplier will always have surplus credit available in her/his account and he/she will be able to claim a cash refund for such input tax credit lying in his account every quarter. So, in fact, GST will become a money spinner for the suppliers of these items.

It also needs to be understood that under the GST, input tax credit or refund is not available for those goods on which the GST rate is zero percent. Thus, if the GST rate had been kept at zero per cent for these items, the suppliers of these items would not have been able to avail of the input tax credit. This would have made these items expensive, as the GST component of the cost of inputs and input services would have been added to the cost of the aids and appliances for the disabled by manufacturers and traders.

Thus, by keeping the GST rate at 5 per cent on these aids and appliances, the GST Council has wisely promoted the interests of disabled persons. And as a corollary, Muralidharan’s prescription of keeping the GST rate at zero per cent on these aids and appliances would make these items expensive and, thereby, would unintentionally end up harming the interests of the disabled persons

Source: http://indianexpress.com/article/opinion/columns/gst-disabled-aids-tax-exemption-4765754/